Lehman claimed by crunch

Sep 15 2008 by Henryk Zientek, Huddersfield Daily Examiner

INVESTORS were rocked today as the credit crunch claimed one of the world’s biggest investment banks as its latest victim.

Lehman Brothers, which has been hit by billions of dollars-worth of sub-prime mortgage losses, said it was planning to file for Chapter 11 bankruptcy.

The move came as rival Merrill Lynch, another casualty of the sub-prime crisis during the past year, took shelter in a £28bn takeover by the Bank of America.

Meanwhile, 10 investment and commercial banks have announced a £39bn credit line to counter “unprecedented volatility and other challenges affecting global debt and equity markets”.

Asian markets showed heavy losses today in the wake of the latest developments – while London’s FTSE 100 opened more than 2% down.

Filing for Chapter 11 of the US Bankruptcy Code allows firms to reorganise their contractual and debt obligations supervised by a bankruptcy court.

The move follows the collapse of talks hosted by the US Federal Reserve to secure a rescue deal for Lehman, one of Wall Street’s oldest investment banks.

Under the terms of the petition, holding company Lehman Brothers Holdings International is filing for Chapter 11 bankruptcy.

The firm is still pursuing the sale of its broker-dealer and investment management divisions. Another subsidiary, Lehman Brothers Asset Management, will also not be subject to the petition.

The group racked up third quarter losses of £2.2bn after a £3.9bn hit from commercial property and sub-prime mortgage losses.